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Utility walks a thin line on construction

John Seelmeyer

Sierra Pacific Resources probably could pull itself out of the deep hole in which it finds itself if it deeply cut its capital expenditures.

But the company’s top executive views deeper cuts as carrying grave risks for the utility.

Chatting with investment analysts last week,Walter Higgins the president, chief executive and chairman of the Reno-based utility said Sierra Pacific Resources has budgeted $345 million in capital expenditures this year.

That’s a lot of money for a company that lost $307.5 million last year.

The spending on improvements to the system is all the more noteworthy because Nevada Power Co. the Sierra Pacific Resources subsidiary serving Las Vegas needs to refinance about $350 million in debt this autumn.

While Higgins agreed that the capital budget could be slashed, he cautioned analysts that deep cuts could place the company in deeper jeopardy.

After all, he noted, the basis of the company’s position as a regulated monopoly is a promise to provide reliable power service to Nevadans.

That’s a challenge because Nevada Power’s service territory in southern Nevada is expanding so quickly that it’s the fastest-growing electric utility in the nation.

The second-fastest growing? Sierra Pacific Power, the company’s subsidiary in the Reno and Lake Tahoe area.

“We are doing what it takes to be the fastest-growing two utilities in the United States,” Higgins said.

In northern Nevada, Sierra Pacific Power is projected to spend $133 million on construction projects this year, its parent company said in a filing with the Securities and Exchange Commission late last month.

Through 2007, the company estimated it will spend more than $535 million on construction projects in the region.

A big chunk of the expense $46.5 million this year will be continued construction on a 180-mile 345-KV transmission line from near Carlin to the Ely area.

The line will provide a better link between Sierra Pacific and utilities in Idaho, Utah and the Northwest.

Sierra Pacific’s sales of electricity last year were up 2.3 percent, coming on the heels of a 1.9 percent increase in 2001 and a 2.6 percent increase in 2000.

Although the company doesn’t believe it should cut its construction budget much more, Higgins said it’s learning ways to use its scarce resources better.

For instance, he said, the company has adopted a “just in time” approach to the construction of transmission facilities, building them only when they’re absolutely necessary rather than tying up capital too early.

Then, too, he said the company got a couple of breaks.

Plans for power plants in southern Nevada were delayed by outside vendors delays which meant Sierra Pacific Resources didn’t need to spend money on lines to connect its system to the new plants.

While delayed construction of new plants may prove worrisome over the long term, Higgins said the company has nearly all the power it needs for the hot summer season locked up.

And he said the company continues to press its case, both in court and before federal regulators, that it was stuck when Enron and others manipulated Western energy markets in 2000 and 2001.

“We will continue to fight until the bitter end if necessary,” Higgins said.